Sanya Goffe | Pension trustee protection
Fundamentally, a pension trustee owes duties of honesty, loyalty and good faith to the beneficiaries of a plan, a duty to administer the trust with care and skill, and a duty to ensure compliance with the terms of the trust.
A breach of trust may arise where a trustee does something he is not entitled to do, or fails to do something he is required to do, under the trust deed or law.
Breaches can cover unintentional administrative errors as well as negligent, fraudulent or dishonest actions, or if a trustee fails to discharge his duties with care and skill and the members suffer loss as a result.
All trustees - other than professional trustees - regardless of who appointed them, are volunteers who usually, at least in the Jamaican context, have no prior experience in the areas of trusts or pensions.
It is critical that the constitutive documents of pension plans have broad trustee protection provisions, particularly as it may serve to attract and retain the most qualified candidates to serve as trustees and protect trustees from innocent mistakes. There are five main types of protection - pre-emptive court approval; exemption clauses; indemnity from the sponsor and/or plan; liability insurance; and the Trustee Act.
If trustees are facing a particularly difficult or high-value decision, they can apply to the court for approval of their intended course of action. If the trustees get the approval of the court, they are protected against subsequent complaints about that decision.
While this is not always a practical or efficient approach, given the time and costs likely to be involved, it should be considered by trustees where the consequences of making an error will have a significant determinantal impact on members.
Exemption clauses vary widely but are all aimed at excluding the personal responsibility of trustees for breaches of trust. A clause might provide, for example, that a trustee shall not incur any personal liability in the execution of any duties except in cases of fraud. If a trustee protected by such wording committed a breach of trust through an honest mistake, the clause may give him a defence to any claim for breach of trust.
Any trustee who wishes to rely on an exemption clause must carefully check to see whether he is protected under its exact terms. Exemption clauses are strictly construed by the courts, so if there is any ambiguity, the trustee is unlikely to be protected.
It is common for trust deeds to contain a general indemnity from the sponsor, provided trustees have acted honestly and in good faith. One limitation of an indemnity is that it is only as good as the person giving it.
If the sponsor does not have the resources to indemnify the trustees, then the indemnity is of no value.
Possible to be indemnified
It is also possible for trustees to be indemnified directly from the fund. Any such indemnity would need to be expressly contained in the governing documents and would be of no value if the plan were in deficit.
Trustees may seek to protect themselves by obtaining trustee liability insurance against liability for breach of trust. Where insurance coverage is in place, trustees should ensure that they are familiar with the terms of the policy and the extent of the coverage.
It is important to ensure that the trust deed allows trustees to take out insurance cover and have the premiums paid from the fund, in the absence of an express power, case law suggests that insurance may only be purchased and premiums paid from the fund where this is of benefit to members.
Alternatively, trustees may consider seeking the sponsor's agreement to stand the cost of trustee liability insurance.
The Trustee Act states that a trustee shall be accountable only for his own acts and not for those of any other trustee, and may reimburse himself out of the trust for all expenses incurred in the execution of his powers.
The act also provides that if it appears to the court that a trustee may be personally liable for breaches of trust but has acted honestly and reasonably, and ought fairly to be excused for breach of trust and for omitting to obtain the prior direction of the court, then the court may relieve the trustee wholly or partly from personal liability.
Whether a trustee has acted reasonably or honestly is a question for the court to determine in the light of all the circumstances of the case.
A trustee relying on this provision will also have to satisfy the court that he had good reason for not applying to the court for guidance on the matter concerned. This limited protection should be regarded as backup protection for trustees and should not be relied upon in isolation.
Trustees can no longer escape with a vague and superficial interest in the pension plans they manage. They have to understand how it works and take complicated decisions which may have long-term effects on members. This, as well as members' growing awareness of their rights and greater willingness to challenge decisions, results in a greater need for trustees to protect themselves.
It is critical that trustees understand the protection afforded to them under the constitutive documents of the plan.
Trustees should read the constitutive documents for themselves and not rely on an adviser to tell then what the documents say. They should also regularly review the constitutive documents to ensure that the protective provisions remain relevant and robust in the light of the changing pension landscape and their ongoing obligations.
Sanya Goffe is a director of Pension Funds Association of Jamaica and chair of the PFAJ Legislative Committee.